It is the vision of Central Texas Electric Cooperative, Inc. to provide the best value-based utility services to our member-owners, and improve the quality of life in their communities while maintaining a safe work environment.

MISSION STATEMENT

Central Texas Electric Cooperative, Inc.’s mission is to provide our member-owners reliable, high quality utility service at a reasonable cost. To accomplish this mission we shall:

Use our Cooperative structure and explore opportunities in the restructured utility market to yield maximum value for our member-owners.

Section 1. Qualifications and Obligations. Any individual or entity may become a member of the Cooperative by:

Paying the membership fee hereinafter specified;

Agreeing to purchase from the Cooperative electric service by executing a membership agreement in a form proposed and approved by the Cooperative; and

Agreeing to comply with and be bound by the Articles of Incorporation of the Cooperative and these bylaws and any amendments thereto and such rules and regulations as may from time to time be adopted by the Board of Directors, provided, however, that no individual or entity shall become a member unless and until accepted for membership by the Board of Directors or the members. No individual or entity may own more than one (1) membership in the Cooperative.

An “entity” includes any domestic or foreign: business or nonprofit corporation; cooperative; unincorporated association; limited liability company; partnership; trust; estate; and local, regional, state, federal, or national government, including an agency or division of a government.

Married individuals may jointly become a member and their application for joint membership may be accepted in accordance with the foregoing provisions of this section provided both spouses comply jointly with the provisions of the above subdivisions (a), (b), and (c). Except as otherwise provided in these bylaws, a joint member has and enjoys the rights, benefits and privileges, and is subject to the obligations, requirements, and liabilities of being a member. For a joint membership:

(a) Notice of a meeting provided to a joint member constitutes notice to both members.

(b) The presence of a joint member or both joint members at a meeting constitutes the presence of one member at the meeting.

(c) If only one joint member votes on a matter, signs a document, or otherwise acts, then the vote, signature, or action binds the joint membership and constitutes one vote, signature, or action.

Section 2. Membership Fee.The membership fee shall be $25.00, payment of which shall make the member eligible for one or more service connections.

Section 3. Purchase of Electric Service.Each member shall, as soon as electric energy shall be available, purchase from the Cooperative electric energy used on the premises specified in his application for membership, and shall pay therefore monthly at rates which shall from time to time be fixed by the Board of Directors; provided, however, that the Board of Directors may limit the amount of electric energy which the Cooperative shall be required to furnish to any one member. It is expressly understood that amounts paid for electric energy in excess of the cost of service are furnished by members as capital and each member shall be credited with the capital so furnished as provided in these bylaws. Each member shall pay to the Cooperative such minimum amount per month regardless of the amount of electric energy consumed, as shall be fixed by the Board of Directors from time to time. Each member shall also pay all amounts owed by him to the Cooperative as and when the same shall become due and payable.

Section 4. Non-Liability for Debts of the Cooperative.The private property of the members of the Cooperative shall be exempt from execution for the debts of the Cooperative and no member shall be individually liable or responsible for any debts or liabilities of the Cooperative.

Section 5. Expulsion of Members.The Board of Directors of the Cooperative may, by the affirmative vote of not less than two-thirds (2/3) of the members thereof, expel any members who shall have violated or refused to comply with any of the provisions of the Articles of Incorporation of the Cooperative or these bylaws or any rules or regulations adopted from time to time by the Board of Directors. Any member so expelled may be reinstated as a member by a vote of the members at any annual or special meeting of the members. The action of the members with respect to any such reinstatement shall be final unless and until a new cause for expulsion arises.

Section 6. Withdrawal of Membership.Any member may withdraw from membership upon payment in full of all debts and liabilities of such member of the Cooperative and upon compliance with such terms and conditions as the Board of Directors may prescribe.

In the event a membership is terminated, canceled, withdrawn, whether voluntarily or involuntarily, the former member’s rights and interest in the assets of the Corporation will not be forfeited.

Section 7. Transfer and Termination of Membership.

Membership in the Cooperative and a certificate representing the same shall not be transferable except as hereinafter otherwise provided, and upon the death, cessation of existence, expulsion or withdrawal of a member the membership of such member shall thereupon terminate, and the certificate of membership of such member shall be surrendered forthwith to the Cooperative. Termination of membership in any manner shall not release the member from the debts or liabilities of such member to the Cooperative.

A membership may be transferred by a member to himself or herself and his or her spouse, as the case may be, jointly upon the written request of such member and compliance by such married individuals jointly with the provisions of subdivisions (b) and (c) of Section I of this article. Such transfer shall be made and recorded on the books of the Cooperative and such joint membership noted on the original certificate representing the membership so transferred.

When a membership is held jointly by married individuals, upon the death of either spouse such membership shall be deemed to be held solely by the survivor with the same effect as though such membership had been originally issued solely to him or her, as the case may be, and the joint membership certificate may be surrendered by the survivor and upon the recording of such death on the books of the Cooperative the certificate may be reissued to and in the name of such survivor; provided, however, that the estate of the deceased shall not be released from any membership debts or liabilities to the Cooperative.

Section 8. Removal of Directors and Officers.Except as otherwise provided in these Bylaws, the Board may remove a Director designated or appointed by the Board for any reason other than lawfully opposing a Transfer of Cooperative Assets or a Cooperative dissolution. For removal of an Elected Director, any member may file charges against any officer or director by delivering a written statement of such charges to the Secretary of the Cooperative accompanied by a petition signed by not less than five percent (5%) of the total membership of the Cooperative, requesting a hearing and trial of the officer or director on the charges and/or any amendments thereto prior to the trial at the membership meeting - regular or special - as requested in the petition. At such hearing the member or members filing the charges and the charged official or director shall present evidence and argument in support of any defense of the charges either in person or by counsel. A majority vote of the members present shall be required to sustain the charges and remove such director or officer.

Section 9. Membership List.The Cooperative shall maintain a record of current Members in a form permitting the Cooperative to alphabetically list the names and addresses of all members (“Membership List”).

Upon five (5) business days prior written notice or request to the Cooperative, a member in good standing may: (1) inspect and copy the Membership List at a reasonable time and location determined by the Cooperative, or (2) pay the Cooperative a reasonable charge determined by the Cooperative covering the labor and material cost of preparing and copying the Membership List, and the Cooperative must provide the member a copy of the Membership List. A member may inspect, copy, or receive a copy of the Membership List only if, as determined by the Cooperative: (1) the member’s notice or request is made in good faith and for a proper purpose; (2) the member’s written request describes with reasonable particularity the purpose for which the member will use the Membership List, and acknowledges that the Membership List will not be used for any other purpose; and (3) the Membership List is directly connected with the member’s purpose. Except as otherwise provided by the Board, a member may not: (1) use the Membership List for a purpose unrelated to the member’s interest as a Member, (2) use the Membership List to solicit money or property, (3) use the Membership List for a commercial purpose, or (4) sell the Membership List.

Section 1. Annual Meeting.The annual meeting of the members shall be held on the third Tuesday of August at 7:00 o’clock P.M. of each year in the city of Fredericksburg, Gillespie County, Texas, for the purpose of electing directors, passing upon reports covering the previous fiscal year and transacting such other business as may come before the meeting. If the day fixed for the annual meeting in any year shall fall on a legal holiday, such meeting shall be held on the next succeeding business day. For good cause, the Board may change the date, time and place of the Annual Meeting. If the election of directors shall not be held on the day designated herein for any annual meeting, or any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the members as soon thereafter as may be convenient. Failure to hold the annual meeting at the designated time and place shall not work a dissolution of the Cooperative.

Section 2. Special Meetings.Special meetings of the members may be called by at least three (3) directors or upon a written request signed by at least ten percent (10%) of all the members and it shall thereupon be the duty of the Secretary to cause notice of such meeting to be given as hereinafter provided. Special meetings may be held anywhere in the area served by the Cooperative.

Section 3. Notice of Members’ Meetings.Written or printed notices stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, or in case amendments to Articles of Incorporation to be voted upon at an annual meeting, the general nature of each proposed amendment shall be delivered not less than ten (10) days nor more than thirty (30) days before the date of meeting, either personally or by mail or at the direction of the Secretary, or by the person calling the meeting, to each member. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the member at his address as it appears on the records of the Cooperative, with postage thereon pre-paid.

Section 4. Quorum.To constitute a quorum at a membership meeting, at least five percent (5%) of the members must be recorded present in person or by proxy, provided such membership meeting is not called for the purpose of selling, leasing, merging and/or consolidating one or more corporations, or mortgaging property of the Cooperative. Except as provided in Article IX of these bylaws, all sales, leases, mergers and/or consolidations of one or more corporations, and mortgages of Cooperative property must be approved by the membership. In order to constitute a quorum for the purpose of considering the sale, lease, merger and/or consolidation of one or more corporations, or mortgage of the Cooperative’s property, at least one-half of the total membership must be present in person or by proxy. Additionally, the membership shall not sell, lease, merge and/or consolidate with one or more corporations, or mortgage the Cooperative’s property unless two-thirds of the members present in person or by proxy vote in favor. If less than a quorum is present at a meeting, a majority of those present may adjourn the meeting from time to time without further notice provided that the Secretary shall notify any active member of the time and place of such adjournment meeting.

Section 5. Voting.Each member shall be entitled to one (1) vote and no more upon each matter submitted to a vote at a meeting of the members. At all meetings of the members at which a quorum is present all questions shall be decided by a vote of a majority of the members voting thereon in person or by proxy, except as otherwise provided by law, the Articles of Incorporation of the Cooperative, or these bylaws. If married individuals hold a joint membership, they shall jointly be entitled to one (1) vote and no more upon each matter submitted to a vote at a meeting of the members. If the membership is not a joint membership, a spouse of a member may vote for the member, unless the member has provided written notice to the Cooperative directing otherwise. In order to vote, a member or spouse must provide identification or proof of Cooperative membership satisfactory to the Cooperative. To vote for an entity member, an individual must present evidence satisfactory to the Cooperative that the individual is authorized to vote for the entity member.

Section 6. Proxies.At all meetings of members, either annual or special, members may vote by proxy executed in writing by the members (or one member if joint membership) naming the persons holding the offices of president, vice-president and secretary-treasurer of the Cooperative at the time the proxy is solicited as a proxy committee given the authority to vote such proxy. Each proxy shall be voted as directed by the member, or in the absence of such direction, as determined by a majority of the aforesaid proxy committee. No proxy shall be valid after eleven months from the date of its execution.

Section 7. Credentials and Election Committee. On or before February 1 of each year, each director of the Cooperative shall choose an individual to serve on the Credentials and Election Committee (“C & E Committee”). At random, by computer selection, the Cooperative shall select an equal number of members from each respective district who shall also serve on the C & E Committee. A C & E Committee member must not be a Cooperative employee or director, a known candidate for director, or the spouse of an employee, director or candidate for director.

The C & E Committee shall:

Elect a chairperson and secretary.

Oversee member registration and voting, and the tabulation of member votes at all member meetings and district meetings.

Consider and decide all questions, issues, or disputes regarding member registration and voting and the tabulation of member votes.

Approve the sufficiency of petitions submitted by candidates seeking nomination at district or annual member meetings to be elected to the Cooperative’s Board of Directors.

Determine whether candidates seeking nomination at a district or annual member meeting satisfy director qualifications set forth in these bylaws.

Except when considering member registration, voting and the tabulation of member votes at member meetings and district meetings, the C & E Committee may act only if a majority of the C & E Committee members are present. When considering member registration, voting and the tabulation of member votes at member meetings and district meetings, at least three C & E Committee members must be present. If there are not at least three committee members present at a member or district meeting, the official presiding over the meeting shall appoint up to three Cooperative members in attendance at the meeting to serve on the C & E Committee for the duration of the meeting. A C & E Committee decision or action requires a vote of at least a majority of the C & E Committee members present. At the Cooperative’s expense, the Cooperative shall make legal counsel available to the C & E Committee. As used in this bylaw, member voting includes proxy voting.

Actions and decisions of the C & E Committee are final. Any action or decision by the C & E Committee or the Cooperative, or any failure to act as required by this bylaw, shall not, by itself, affect a vote, a director nomination or election, or other action taken at a member or district meeting.

By resolution of the Board of Directors, C & E Committee members may receive reasonable compensation, including a fixed sum and expenses of attendance, if any, as may be allowed for attendance at each meeting of the committee.

Section 8. Order of Business.Except as otherwise provided in these bylaws, before or at a member or district meeting, the Board of Directors shall determine the agenda, program, or order of business for the member or district meeting.

Section 1. General Powers. The business and affairs of the Cooperative shall be managed by a board of eleven (11) directors which shall exercise all the powers of the Cooperative excepting such as are by law or by the Articles of the Cooperative or by the bylaws conferred upon or reserved to the members. The territory served by the Cooperative shall be divided into six (6) directorate districts. The districts and the number of directors who shall represent each district are described as follows:

DIRECTORATE DISTRICT NO.

DESCRIPTION

NUMBER OF DIRECTORS

One

Kendall County Area

1

Two

Kerr/Real/Southern Kimble County Area

1

Three

Mason/McCulloch/Menard/ Northern Kimble County Area

2

Four

Llano County Area

3

Five

Gillespie/Blanco County Area

3

Six

San Saba County Area

1

Section 2. Qualifications and Tenure.Directors shall be so nominated and elected that one director from or with respect to each of directorate districts numbers four, five, and six shall be elected for three-year terms at an annual member meeting; one director from or with respect to each of directorate districts nos. one, three, four and five shall be elected for three-year terms at the next succeeding annual member meeting; and one director from or with respect to each of directorate districts nos. two, three, four and five shall be elected for three-year terms at the next succeeding annual member meeting, and so forth, provided that the terms of no two directors from the same directorate district shall coincide. Upon their election, directors shall, subject to the provisions of these bylaws with respect to the removal of directors, serve until the annual meeting of the members of the year in which their terms expire or until their successors shall have been elected and shall have qualified. If for any reason an election of directors shall not be held at an annual meeting of the members duly fixed and called pursuant to these bylaws, such election may be held at an adjournment of this meeting of the members. Failure of an election for a given year shall allow the incumbents whose directorships would have been voted on to hold over only until the next member meeting at which a quorum is present.

To initiate the staggered terms described above the directors from districts three, four and five shall draw by lot to determine their respective terms of office, a separate drawing being held for each district.

To be eligible for election or appointment to, and to serve on, the Cooperative’s Board of Directors, a person shall:

Be an individual with the capacity to enter legally binding contracts;

Be a member of the Cooperative for at least twelve (12) months;

Have within the service territory served by the cooperative (i) his/her principal place of residence for which his/her residence homestead exemption is claimed pursuant to Chapter 11 of the Texas Tax Code; or (ii) if none of the above apply, his/her principal residence, as defined under 26 C.F.R. §1.121-1(a)(2);

Not be engaged in any business, nor employed by or materially affiliated with any individual or entity:

Regularly, directly, and substantially competing with the Cooperative or a Cooperative Subsidiary;

Regularly selling goods or services to the Cooperative or a Cooperative Subsidiary; or

Otherwise possessing a substantial conflict of interest with the Cooperative or a Cooperative Subsidiary;

Not be an incumbent of or candidate for an elective public office in connection with which a salary is paid, other than members of a School Board or County Commissioner’s Court;

Not be an individual that has been an employee of the Cooperative within two (2) years prior to serving on the Cooperative’s Board of Directors; and

Except as otherwise provided by the Board of Directors for good cause, receive a Credentialed Cooperative Director designation, Director’s Certificate, or similar certification from the National Rural Electric Cooperative Association within three years after becoming a director.

Members of the Board of Directors having been elected to four (4) terms of service on said Board (regardless of whether such terms are consecutive) shall be ineligible for election to the Board of Directors. As stated in Article III, Section 2, a term shall last three (3) years. Notwithstanding the foregoing, a Member of the Board of Directors with twelve (12) consecutive years of service on said Board shall be eligible for appointment to the Board of Directors for the purpose of filling a Director Vacancy in accordance with Article III, Section 4 of these Bylaws.

Married individuals shall not both be eligible to serve on the Board of Directors at the same time.

Nothing in this Section contained shall, or shall be construed to, affect in any manner whatsoever, the validity of any action taken at any meeting of the Board of Directors.

The Board of Directors shall not authorize the employment of a chief executive officer, assistant chief executive officer, attorney, assistant attorney, who is related in the second degree by affinity or the third degree by consanguinity to any director, retained Cooperative attorney, chief executive officer and/or assistant chief executive officer of the Cooperative.

Director Disqualification: After being elected or appointed, if a Director does not comply with the Director Qualifications existing when the Director was elected or appointed, then except as otherwise provided by the Board for good cause, the Board, by two-thirds vote, shall disqualify the Director and the individual is no longer a Director if: (1) the Board notifies the Director in writing of the basis for, and provides the Director an opportunity to comment regarding, the Board’s proposed disqualification; and (2) within 45 days after the Board notifies the Director of the proposed disqualification, the director neither complies with nor meets the Director Qualification. If a majority of Directors authorized by these Bylaws complies with the Director Qualifications and approves a Board action, then the failure of a Director to comply with the Director Qualifications does not affect the Board action.

Section 3. Nominations and Elections. Director elections will take place at the annual meeting of members held on the third Tuesday of August of each year. The names of all candidates nominated for election to the board of directors in accordance with these bylaws, and whose eligibility is confirmed by the C & E Committee, shall be published in the notice of meeting mailed to the members of the cooperative, along with a proxy ballot including the names of all such nominated candidates for director.

Methods of Nominating. Nominations to serve as a director may be made: (1) by the members at a district meeting as provided in subsection (a) of this section or (2) by member petition delivered to the Cooperative as provided in subsection (b) of this section.

(a) District Meetings.Between May 20 and June 20 of each year, the Board of Directors shall convene a separate meeting of the members of each district at a suitable place designated by the Board of Directors. Notice of the meeting shall be mailed to each member located in such district and shall indicate the district to which the member belongs. If a director is to be selected from the district, the notice shall state that the members in attendance at the meeting shall select the district’s nominee for director. The meeting shall be open for discussion of any other matters pertaining to the business of the Cooperative, regardless of whether or not such matters were listed in the notice of the meeting. However, the district meeting does not constitute a meeting of members of the Cooperative as described in these bylaws, and no formal action may be taken, other than the selection of the district’s nominee for director.

On or before March 15 (or the next following day that is not a Saturday, Sunday or legal holiday) of each year, each member seeking to become his or her district’s nominee for director must deliver to the Cooperative a Cooperative-approved application confirming that the member satisfies bylaw requirements to serve as director, along with a petition meeting the following requirements:

Listing, on each page, the name of the member seeking to become the district meeting nominee;

Indicating, on each page, the director position for which the member will run; and

Containing the printed names, addresses, telephone numbers, and original dated signatures of at least ten Cooperative members receiving electric service from the Cooperative in the district in question.

The C & E Committee shall review all applications and petitions submitted by members seeking nomination at a district meeting to confirm that the requirements of these bylaws have been satisfied, and further confirming that each such member satisfies bylaw eligibility requirements to serve as director. The C & E Committee shall report its findings to the President of the Board of Directors in writing on or before March 30 of each year. The names of all candidates seeking district meeting nominations whose eligibility is confirmed by the C & E Committee shall be included in the District Meeting Notice.

The President of the Board of Directors shall designate a chairperson to preside over each district meeting. The district meeting shall be called to order by the chairperson, who shall appoint a secretary to act for the duration of the meeting. Members of other districts present at the meeting may be heard but shall have no vote.

The district meeting shall select one and only one member to be the nominee of the district meeting to serve on the Board of Directors. Such person shall be considered at the meeting of the members as the nominee of the district meeting. Voting by mail and voting by proxy shall not be allowed at the district meeting. If only one candidate is seeking to become the district’s nominee for director, he or she may be elected by acclamation. If more than one candidate is seeking to become the district meeting nominee at the district meeting, voting by ballot shall be conducted. If one candidate receives more than fifty percent (50%) of the vote, that candidate shall be declared to be the official nominee of the district meeting from such district. If no candidate receives more than fifty percent (50%) of the votes, runoff ballots shall be conducted until one candidate receives more than fifty percent (50%) of the vote. The two candidates receiving the highest number of votes on the preceding ballot shall be included in the succeeding runoff ballot. In the event of ties, more than two candidates may be included in a runoff ballot. In the event there are three runoff ballots with no candidate receiving more than fifty percent (50%) of the vote, the nominee of the district meeting shall be selected by lot from among the candidates included on the final runoff ballot. One member shall be declared to be the official nominee of the district meeting from such district.

The minutes of each district meeting shall set forth, among other matters; the name of each candidate seeking to become the district meeting nominee and the number of votes received by each, and shall specify the official nominee of the district meeting. A copy of the minutes, signed and certified to by the chairperson and secretary of the district meeting, shall be delivered to the secretary of the Cooperative within ten (10) days after such district meeting. No informality or defect in such minutes, or in the proceedings had, shall void the nominations so made or affect the validity of the election of directors at the meeting of the members of the Cooperative.

District Meeting Record Date. A “Record Date” is the date for determining the members entitled to (1) receive notice of a district meeting, and (2) vote at a district meeting. In order to exercise these privileges, an individual or entity must be accepted for membership in the Cooperative by the Board of Directors in accordance with Article I, Section 1 of these bylaws on or before the Record Date. Any membership transfer to create a joint membership in accordance with Article I, Section 7(b) of these bylaws must be accepted by the Board of Directors on or before the Record Date in order for such membership transfer to be given effect at a district meeting. If a member is suspended after the Record Date, that member is not entitled to receive notice or exercise the right to vote at a district meeting.

Unless otherwise designated by the Board of Directors, the Record Date for purposes of determining the members entitled to (1) receive notice of a district meeting and (2) vote at a district meeting shall be the second Tuesday in May immediately preceding such district meeting.

(b) Nomination by Petition.In addition to district meeting nominations, a Cooperative member may place his or her name in nomination to run for election to a director position at an annual meeting of members by member petition and application. On or before June 25 (or the next day that is not a Saturday, Sunday or legal holiday) of each year, a member seeking to be nominated in this manner must deliver to the Cooperative a Cooperative-approved application confirming that the member satisfies bylaw requirements to serve as director, along with a petition meeting the following requirements:

Listing, on each page, the name of the member being placed in nomination;

Indicating, on each page, the director position for which the nominee will run; and

Containing the printed names, addresses, telephone numbers, and original dated signatures of at least one percent (1%) of the Cooperative members as of the date the petition is submitted.

The C & E Committee shall review all applications and petitions submitted by members seeking to place their name in nomination for a director position at an annual meeting to confirm that the requirements of these bylaws have been satisfied, and further confirming that each such member satisfies bylaw eligibility requirements to serve as director. The C & E Committee shall report its findings to the President of the Board of Directors in writing on or before June 30 of each year.

(c) Notice of Nominations. The Secretary shall mail with the notice of the meeting, or separately, but at least ten (10) days prior to the meeting, a statement of the number of directors to be elected and showing the nominations made by the district meetings and nominations by petition. Notwithstanding anything in this section contained, failure to comply with any of the provisions of this section shall not affect in any manner whatsoever the validity of any election of directors.

(d) Elections.Members present in person and by proxy at the annual member meeting shall elect directors from each directorate district in which a director election is being held. Each member may cast one vote in each such district, without regard to the district or districts where the member resides or receives electric service from the Cooperative. Directors shall be elected from the District Meeting Nominations and Member Petition Nominations. If only one candidate is nominated in a district, he or she may be elected by acclamation. Members may not vote for write-in candidates. The candidate receiving the most votes in each district shall be declared the winner of the election.

Section 4. Director Vacancy.Unless otherwise provided in these bylaws, a vacancy occurring in the Board of Directors shall be filled by a majority vote of the remaining directors within 120 days after such occurrence. Any director elected in this manner shall serve the un-expired director term of the vacant director position or until his or her successor shall have been elected and shall have qualified.

Section 5. Compensation.Directors as such shall not receive any salary for their services but by resolution of the Board of Directors may receive reasonable compensation including a fixed sum and expenses of attendance, if any, as may be allowed for attendance at each meeting of the Board of Directors.

Section 6. Rules and Regulations.The Board of Directors shall have power to make and adopt such rules and regulations not inconsistent with law, the Articles of Incorporation of the Cooperative or these bylaws, as it may deem advisable for the management, administration and regulation of the business and affairs of the Cooperative.

Section 7. Accounting System and Reports.The Board of Directors shall cause to be established and maintained a complete account system which, among other things, subject to the applicable laws and rules and regulations of any regulatory body, shall conform to such accounting system as may from time to time be designated by the National Rural Utilities Cooperative Finance Corporation (CFC). The Board of Directors shall also no later than thirty (30) days after December 31st of each year engage qualified auditors to perform a full and complete audit of the accounts, books and financial condition of the Cooperative. Such audit reports shall be submitted to the members at the following annual meeting.

Section 8.Change in Rates. The Board of Directors may authorize any change in rates in conformity with the applicable laws.

ARTICLE IV - MEETING OF DIRECTORS

Section 1. Regular Meetings.A regular meeting of the Board of Directors shall be held without notice other than this bylaw, immediately after, and at the same place as, the annual meeting of the members. A regular meeting of the Board of Directors shall also be held on the second Tuesday of each month, or on such other date as the directors may designate, at such place as the directors may designate. Such regular monthly meeting may be held without notice other than these bylaws.

Section 2. Special Meetings.Special meetings of the Board of Directors may be called by the President or any three (3) directors. The person or persons authorized to call special meetings of the Board of Directors may fix the time and place for the holding of any special meeting of the Board of Directors called by them. For good cause, Special Meetings may be conducted with absent Directors participating, and deemed present in person, through any means of electronic communication by which all Directors participating in the Board Meeting may simultaneously hear each other during the meeting.

Section 3. Notice.Notice of the time, place and purpose of any special meeting of the Board of Directors shall be given at least five (5) calendar days previous thereto, by written notice, delivered personally, mailed or electronically delivered, to each director at his last known address, or to his personal contact information last provided for electronic communications. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except in case a director shall attend a meeting for the purpose of objecting to the transaction of any business because the meeting shall not have been lawfully called or convened.

Section 4. Quorum.A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, provided, that if less than a majority of the directors are present at said meeting, a majority of the directors present may recess the meeting from time to time without further notice.

Section 5. Manner of Acting.The act of six (6) of the directors at a meeting at which a quorum is present shall be the act of the Board of Directors.

Section 6. Member Attendance at Board Meetings. A Cooperative member who has provided three (3) days written notice to the Cooperative prior to a regular or special meeting of the Board of Directors may address the Board of Directors, subject to such restrictions and limitations that the presiding officer or Board of Directors may impose to ensure the timely and orderly progress of the meeting. This provision does not confer any right upon a member to attend or participate in any regular, special or executive meeting or session of a meeting of the Board of Directors.

ARTICLE V - OFFICERS

Section 1. Number.The officers of the Cooperative shall be President, Vice-President, Secretary and Treasurer. The offices of Secretary and of Treasurer may be held by the same person.

Section 2. Election and Term of Office.The officers shall be elected, by ballot, annually by and from the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the members or at the first meeting of the Board of Directors held after a special membership meeting at which directors were elected. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until the first meeting of the Board of Directors following the next succeeding annual meeting of the members or until his successor shall have been duly elected and shall have qualified, subject to the provisions of these bylaws with respect to the removal of offices.

Section 3. Removal.Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interest of the Cooperative will be served thereby.

Section 4. Vacancies.Except as otherwise provided in these bylaws, a vacancy in any office may be filled by the Board of Directors for the unexpired portion of the term.

Section 5. President.The President:

Shall be the principal executive officer of the Cooperative and shall preside at all meetings of the members of the Board of Directors.

Shall sign, with the Secretary certificates of membership, the issue of which shall have been authorized by resolution of the Board of Directors, and may sign any deeds, mortgages, deeds of trust, notes, bonds, contracts or other instruments authorized by the Board of Directors to be executed except in cases in which the signing and execution thereof shall be expressly delegated by the Board of Directors or by these bylaws to some other officer or agent of the Cooperative, or shall be required by law to be otherwise signed or executed.

In general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time.

Section 6. Vice-President.In the absence of the President, or in the event of his inability or refusal to act, the Vice-President shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President and shall perform such other duties as from time to time may be assigned to him by the Board of Directors.

Section 7. Secretary. The Secretary shall:

Keep the minutes of the meetings of the members and of the Board of Directors in one or more books provided for that purpose.

Sign with the President certificates of membership, the issuance of which shall have been authorized by resolution of the Board of Directors.

See that there is on file in the office of the Cooperative at all times a complete copy of the bylaws of the Cooperative containing all amendments thereto, which copy shall be open to the inspection of any member at all reasonable times.

Together with the Assistant Chief Executive Officer, head Bookkeeper, or other named employee of the Cooperative (Board to determine what officer or employee) see that all notices are duly given in accordance with these bylaws or as required by law; be custodian of the corporate records and of the seal of the Cooperative and see that the seal of the Cooperative is affixed to all certificates of membership prior to the issue thereof and to all documents, the execution of which on behalf of the Cooperative under its seal is duly authorized in accordance with the provisions of these bylaws; keep in the office of the Cooperative, a register of the post office address of each member and the books of the Cooperative containing a record of members (the members shall furnish the secretary with their post office addresses); and in general perform all of the duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the Board of Directors.

Section 8. Treasurer.The Treasurer together with the President of the Board and such other person or persons to whom the Board may delegate authority shall:

Have charge and custody of and be responsible for all funds and securities of the Cooperative;

Receive and give receipts for monies due and payable to the Cooperative from any source whatsoever, and deposit all such monies in the name of the Cooperative in such banks as shall be selected in accordance with the provisions of these bylaws; and

In general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors.

Section 9. Chief Executive Officer.The Board of Directors may appoint a chief executive officer who may be, but who shall not be required to be a member of the Cooperative. The chief executive officer shall perform such duties as the Board of Directors may from time to time require of him and shall have such authority as the Board of Directors may from time to time vest in him.

Section 10. Bonds of Officers.The Board of Directors may require the treasurer or any other officer of the Cooperative charged with responsibility for the custody of any of its funds or property, to give bond in such sum and with such surety as the Board of Directors shall determine. The Board of Directors in its discretion may also require any other Officer, agent or employee of the Cooperative to give bond in such amount and with such surety as it shall determine.

Section 11. Compensation.The compensation, if any, of any officer who is also a director, shall be determined by the Board of Directors.

Section 12. Reports.The officers of the Cooperative shall submit at each annual meeting of the members reports covering the business of the Cooperative for the previous fiscal year and showing the condition of the Cooperative at the close of such fiscal year.

ARTICLE VI- CONTRACTS, CHECKS, AND DEPOSITS

Section 1. Contracts.Except as otherwise provided in these bylaws, the Board of Directors may authorize any officer or officers, agent or agents to enter into any contract or execute and deliver any instrument in the name and on behalf of the Cooperative, and such authority may be general or confined to specific instances.

Section 2. Checks, Drafts, etc.All checks, drafts or other orders for the payment of money, and all notes, bonds or other evidences of indebtedness issued in the name of the Cooperative shall be signed by such officer or officers, employee or employees of the Cooperative and in such manner as shall from time to time be determined by resolution of the Board of Directors.

Section 3. Deposits.All funds of the Cooperative shall be deposited from time to time to the credit of the Cooperative in such bank or banks as the Board of Directors may select.

ARTICLE VII - MEMBERSHIP CERTIFICATES

Section 1. Certificates of Membership.Membership in the Cooperative shall be evidenced by a certificate of membership which shall be in such form and shall contain such provisions as shall be determined by the Board of Directors not contrary to, or inconsistent with, the Articles of Incorporation of the Cooperative or these bylaws. Such certificate shall be signed by the President and by the Secretary of the Cooperative and the corporate seal shall be affixed thereto.

Section 2. Issue of Membership Certificates.No membership certificates shall be issued for less than the membership fee fixed in these bylaws, nor until such membership fee has been fully paid for, and such payment has been deposited with the Treasurer.

Section 3. Lost Certificates.In case of a lost, destroyed, or mutilated certificate, a new certificate may be issued therefore upon such terms and such indemnity to the Cooperative as the Board of Directors may prescribe.

ARTICLE VIII - NON-PROFIT OPERATION

Section 1. Interest or Dividends on Capital Prohibited.The Cooperative shall at all times be operated on a cooperative non-profit basis for the mutual benefit of its patrons. No interest or dividends shall be paid or payable by the Cooperative on any capital furnished by its patrons.

Section 2. Patronage Capital in Connection with Furnishing Electric Services, Energy or Other Service. In the furnishing of electric services, energy or other services, the Cooperative’s operation shall be so conducted that all patrons will through their patronage furnish capital for the Cooperative. In order to induce patronage and to assure that the Cooperative will operate on a non-profit basis the Cooperative is obligated to account on a patronage basis to all its patrons for all amounts received and receivable from the furnishing of electric energy in excess of operating costs and expenses properly chargeable against the furnishing of electric energy. All such amounts in excess of operating costs and expenses at the moment of receipt by the Cooperative are received with the understanding that they are furnished by the patrons as capital. The Cooperative is obligated to pay by credits to a capital account for each patron all such amounts in excess of operating costs and expenses. The books and records of the Cooperative shall be set up and kept in such a manner that at the end of each fiscal year the amount of capital, if any, so furnished by each patron is clearly reflected and credited in an appropriate record to the capital account of each patron, and the Cooperative shall within a reasonable time after the close of the fiscal year notify each patron of the amount of capital so credited to his account. All such amounts credited to the capital account of any patron shall have the same status as though they had been paid to the patron in cash in pursuance of a legal obligation to do so and the patron had then furnished the Cooperative corresponding amounts for capital.

All other amounts received by the Cooperative from its operations in excess of costs and expenses shall, insofar as permitted by law, be (a) used to offset any losses incurred during the current or any prior fiscal year and (b) to the extent not needed for that purpose, allocated to its patrons on a patronage basis and any amount so allocated shall be included as a part of the capital credited to the accounts of patrons, as herein provided.

In the event of dissolution or liquidation of the Cooperative, after all outstanding indebtedness of the Cooperative shall have been paid, outstanding capital credits shall be retired without priority on a pro rata basis before any payments are made on account of property rights of members. If, at any time prior to dissolution or liquidation, the Board of Directors shall determine that the financial condition of the Cooperative will not be impaired thereby, the capital then credited to patrons’ account may be retired in full or in part. One-half of any such retirements of capital shall be made in order of priority according to the year in which the capital was furnished and credited, the capital first received by the Cooperative being first retired; the other one-half of any such retirement shall be made in the same proportion as the patron’s total outstanding contributed capital bears to the outstanding contributed capital of all patrons.

Capital credited to the account of each patron shall be assignable only on the books of the Cooperative pursuant to written instructions from the assignor and only to successors in interest or successors in occupancy in all or a part of such patron’s premises served by the Cooperative unless the Board of Directors, acting under policies of general application, shall determine otherwise.

Notwithstanding any other provision of these bylaws, the Board of Directors, at its discretion, shall have the power at any time upon the death of any patron, and upon written request by the legal representatives of the estate, to retire capital credited to any such deceased patron immediately upon such terms and conditions as the Board of Directors, acting under policies of general application shall determine; provided, however, that the financial condition of the Cooperative will not be impaired thereby. Requests to retire any other capital credited to a member prior to the time such capital would otherwise be retired, for reasons other than death, may be considered by the Board of Directors on a case-by-case basis.

The Cooperative shall have the right to offset the retirement approved by the Board of Directors for a patron against the debt owed to the Cooperative by such patron. The Cooperative, before retiring any capital credit of any patron’s account, shall deduct from the retirement of capital credits any amounts owed by such patron to the Cooperative. This provision shall apply to all retirements of capital credits.

The patrons of the Cooperative, by dealing with the Cooperative, acknowledge that the terms and provisions of the Articles of Incorporation and bylaws shall constitute and be a contract between the Cooperative and each patron, and both the Cooperative and the patrons are bound by such contract, as fully as though each patron had individually signed a separate instrument containing such terms and provisions. The provisions of this article of the bylaw shall be called to the attention of each patron of the Cooperative by posting in a conspicuous place in the Cooperative’s office.

Section 3. Escheat.That all persons to whom capital have been allocated shall keep the Cooperative informed of their current mailing address in order that the Cooperative may retire or refund capital credits, membership fees, deposits and any other amounts to such persons in accordance with the bylaws. If, prior to retirement of capital as provided by these bylaws, a person ceases to be a member or patron of the Cooperative and such person’s existence and whereabouts are unknown to the Cooperative, and if such non-member or a member fails to cash or claim a check, the Cooperative shall use reasonable efforts as required by law to notify the member or non-member of such failure.

If the capital credits remain unclaimed after three (3) years, the distribution may be delivered in accordance with Section 74.3013 of the Texas Property Code to a scholarship fund, to an economic development fund and to an energy efficiency assistance fund, each as further described and to the limits described in such Section 74.3013 of the Property Code. Otherwise, such amounts will be reported and remitted to the State Comptroller’s Office in accordance with current State of Texas unclaimed property laws.

ARTICLE IX - DISPOSITION AND PLEDGING OF PROPERTY

Not inconsistently with subsection (b) hereof, the members of the Cooperative may, at a duly held meeting of the members, authorize the sale, lease, lease-sale, exchange, transfer or other disposition of all or a substantial portion of the Cooperative’s property and assets by the affirmative votes of a majority of the total members of the Cooperative. However, the Board of Directors, without authorization by the members, shall have full power and authority (1) to borrow monies from any source and in such amounts as the Board may from time to time determine, (2) to mortgage or otherwise pledge or encumber any or all of the Cooperative’s property or assets as security therefor, and (3) to sell, lease, lease-sell, exchange, transfer or otherwise dispose of merchandise, property no longer necessary or useful for the operation of the Cooperative, or less than a substantial portion of the Cooperative’s property and assets. “Substantial portion” means ten percent (10%) or more of the Cooperative’s total assets as reflected on its books at the time of the transaction.

Supplementary to the first sentence of the foregoing subsection (a) and any other applicable provisions of law or these bylaws, no sale, lease, lease-sale, exchange, transfer or other disposition of all or a substantial portion of the Cooperative’s property and assets shall be authorized except in conformity with the following:

If the Board of Directors looks with favor upon any proposal for such sale, lease, lease-sale, exchange, transfer or other disposition, it shall first cause three (3) independent, non-affiliated appraisers, expert in such matters, to render their individual opinions as to the value of the property with respect to such a sale, lease, lease-sale, exchange, transfer or other disposition and as to any other terms and conditions which should be considered. The three (3) such appraisers shall be designated by a District Court Resident Judge for the Judicial District in Texas in which the Cooperative’s headquarters are located. If such judge refuses to make such designations, they shall be made by the Board of Directors

If the Board of Directors, after receiving such appraisals (and other terms and conditions which are submitted, if any) determines that the proposal should be submitted for consideration by the members, it shall first give every other rural electric cooperative corporations corporately sited and operating in Texas (which has not made such an offer for such sale, lease, lease-sale, exchange, transfer or other disposition) an opportunity to submit competing proposals. Such opportunity shall be in the form of a written notice to such rural electric cooperative corporations, which notice shall be attached to a copy of the proposal which the Cooperative has already received and copies of the respective reports of the three (3) appraisers. Such rural electric cooperative corporations shall be given not less than thirty (30) days during which to submit competing proposals, and the actual minimum period within which proposals are to be submitted shall be stated in the written notice given to them.

If the Board then determines that favorable consideration should be given to the initial or any subsequent proposal which has been submitted to it, it shall so notify the members not less than sixty (60) days before noticing a special meeting of the members thereon, or, if such be the case, the next annual member meeting, expressing in detail each of any such proposals, and shall call a special meeting of the members for consideration thereof and action thereon, which meeting shall be held not less nor more than thirty (30) days after the giving of notice thereof to the members: PROVIDED, that consideration and action by the members may be given at the next annual member meeting if the Board so determines and if such annual meeting is held not less nor more than thirty (30) days after the giving of notice of such meeting.

Any fifty (50) or more members, by so petitioning the Board not less than thirty (30) days prior to the date of such special or annual meeting, may cause the Cooperative, with the cost to be borne by the Cooperative, to mail to all members any opposing or alternative positions which they may have to the proposals that have been submitted or any recommendations that the Board has made.

The provisions of this subsection (b) shall not apply to a sale, lease, lease-sale, exchange, transfer or other disposition to one or more other rural electric cooperatives if the substantive effect thereof is to merge with such other one or more rural electric cooperative corporations or the actual legal effect thereof is to consolidate with such other one or more rural electric cooperative corporations.

ARTICLE XII - AMENDMENTS

ARTICLE XIII - INDEMNIFICATION OF OFFICERS AND DIRECTORS

Section 1. Indemnification for Expenses and Liability.Every director and officer of the Cooperative shall be indemnified by the Cooperative against all judgments, penalties, fines, liabilities, amounts paid in settlement and reasonable expenses, including counsel fees actually incurred by or imposed upon him or her in connection with any proceeding to which he or she was, is or is threatened to be made a party, or in which he or she may become involved, by reason, in whole or in part, of being or having been a director or officer of the Cooperative, whether or not he or she is a director or officer, at the time such expenses are incurred, to the maximum extent consistent with the provisions of Article 2.22A of the Texas Non-Profit Corporation Act; provided that in the event of a settlement the indemnification wherein shall apply only when the Board of Directors approves such settlement and reimbursement as being for the best interests of the Cooperative. The foregoing right of indemnification shall be in addition to and not exclusive of all other rights to which such director or officer may be entitled.

Section 2. Power to Purchase Insurance.The Cooperative shall have the power to purchase and maintain, insurance on behalf of any person who is or was a director, officer, employee or agent of the Cooperative, or is or was serving at the request of the Cooperative as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Cooperative would have the power to indemnify him against such liability under the provision of this Article.

Section 3. Continuing Offer, Reliance.The provisions of this Article are for the benefit of, and may be enforced by, each director and officer of the Cooperative as a contract for valuable consideration and constitute a continuing offer to all present and future directors and officers of the Cooperative. The Cooperative, by the adoption of this Article agrees that each present and future director and officer of the Cooperative has relied upon and will continue to rely upon the provisions of this Article in accepting, serving or continuing to serve as a director or officer.

Section 4. Effect of Amendment.No amendment, modification or repeal of this Article or any provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future director or officer of the Cooperative to be indemnified by the Cooperative, nor the obligation of the Cooperative to indemnify any such director or officer, under and in accordance with the provisions of the Article as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

APPENDIX A

STATEMENT OF NONDISCRIMINATION

In accordance with Federal civil rights law and U.S. Department of Agriculture (USDA) civil rights regulations and policies, the USDA, its Agencies, offices, and employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident.

Persons with disabilities who require alternative means of communication for program information (e.g., Braille, large print, audiotape, American Sign Language, etc.) should contact the responsible Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or contact USDA through the Federal Relay Service at (800) 877-8339. Additionally, program information may be made available in languages other than English.

To file a program discrimination complaint, complete the USDA Program Discrimination Complaint Form, AD-3027, found online at How to File a Program Discrimination Complaint and at any USDA office or write a letter addressed to USDA and provide in the letter all of the information requested in the form. To request a copy of the complaint form, call (866) 632-9992. Submit your completed form or letter to USDA by: (1) mail: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, SW, Washington, D.C. 20250-9410; (2) fax: (202) 690-7442; or (3) email: program.intake@usda.gov.

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